Bad Vibrations: Sony fails to overturn court ruling in Dual Shock Patent Infringement

Settling IP cases can often yield better circumstances then all-out litigation. For example, a federal district court ruled that Sony's use of vibrating controllers for its Play Station 2 infringed on the patent rights of a company called Immersion (see Immersion Corp. v. Sony Computer Entm't Am., Inc., 2005 U.S. Dist. LEXIS 4781 (D. Cal. 2005)). The case was filed in 2004 and is currently in the US Court of Appeals. Losing this appeal could cost Sony a total of $90 million in damages, including attorneys fees. A ruling on the appellate brief is likely to come down within the next few months.

Choosing to fight rather than settle, Sony has backed itself into a corner. Immersion seeks to protect its patent in haptic feedback technology, which is designed to create the "dual shock" effect in video game controllers. Such an effect causes the game controller to vibrate in real time with action on the screen. This interactive feature has become somewhat of a standard interface in the industry. While other companies, such as Sony competitor Microsoft and game controller maker Mad Catz have both opted to settle out of court, Sony decided to challenge Immersion's patent and lost to the tune of millions.

Meanwhile, the results of settlement for Microsoft cost a milder sum of $26 million, almost 1/4 of the potential Sony damages. Plus, for an additional $9 million dollars, Microsoft took a 10% stake in Immersion and have since brokered favorable licensing deals to use the haptic technology. In effect, Microsoft has now become an interested party in any subsequent litigation involving Immersion. One commentator has even smartly called the Sony/Immersion case "Latest Microsoft war-by-proxy". From a settlement standpoint, Sony stands to lose a chunk of revenue that it didn't have to lose; all it would have taken was a simple shift in perspective to view Immersion as an opportunity rather than an opponant. To add insult to injury, it is reasonable to view Immersion's potential/eventual collection of $90M from Sony, as a Microsoft gain of $9 million, since they are a 10% stakeholder in the company. Were we to take this economic diffusion rationale a step further, it could even be viewed that Microsoft's settlement arrangements should be accounted as $9 million less than they actually paid (of course I wouldn't report it to the IRS as such!). To further indulge this notion, if we consider a $90 million dollar payment to Immersion as a $9 million gain to Microsoft, we could infer that Microsoft actually got a 10% stake in Immersion for free, since it cost them $9 million to acquire it. Not a bad deal. Microsoft's willingness to settle and come up with creative remedy options has put them in a position to profit from future licensing deals and lawsuits that Immersion engages in.

An arrangement such as Microsoft's could be considered a win-win solution to what could have been a costly problem. While mediation and settlment don't always work out so well, results such as Microsoft's indicate that parties should always consider creative options before committing to fighting it out. Just how can parties achieve this? In the famous ADR book Getting to Yes, there are four core principles given for brokering any Appropriate Dispute Resolution.

1. Separate the people from the problem;
2. Focus on interests rather than positions;
3. Generate a variety of options before settling on an agreement; and
4. Insist that the agreement be based on objective criteria

Separating the people from the problem consists of three basic ideas: perception among the parties, emotions and communication. In looking a the Sony and Immersion case we could reasonably infer that Sony perceived haptic response technology as a freely usable industry standard since every other controller maker seemed to use it. Then, when Immersion began to initiate suits against infringers emotional pride could have spurred Sony to be combative. With a firm wall of pride erected, neither party could communicate alternatives to litigation. The first advice I would have given Sony would have been to look at Microsoft's favorable outcome, and suggest that we consider settlement options to form a similar alliance with Immersion.

Asking parties to focus on the interests rather than positions is one of the most powerful techniques in Getting to Yes. The adversarial nature of legal disputes tends to burrow parties into seemingly inapposite stances that they refuse to reconcile. However, taking a step back from a strong adversarial position often reveals common interests between the parties. Fisher and Ury explain, "[y]our position is something you have decided upon. Your interests are what caused you to so decide." [p. 42] In my own Mediation and Settlement class at SHU, Judge Hedges always reminds us to have clients distinguish between what they want and what they need. Often this will help them realize their true interests. This is the first step in building a valuable agreement. The parties must then communicate those interests to each other and clearly explain why they have these interests.

In Sony's case, it is likely that they had an interest in keeping their game system in step with the competition and providing their customers with a truly interactive experience. They likely hoped to remain profitable and at the front of the console maker's race. Immersion's likely had an interest in establishing an industry standard of supplying haptic feedback technology for all controllers, and brokering licensing deals with controller makers to use it. Also, Immersion likely wanted to continue to develop innovative technologies that pushed the boundaries of what an interactive gaming experience could be. At the heart of both companies' interests were making money to remain profitable. The bottom line is that instead of creating building blocks toward a mutually beneficial agreement, Sony failed to even lay a foundation b/c they took an aggressive and adversarial position.

The next thing that successful negotiation focuses on is the generation of options for settlement. With everyone's interests clear and hopefully commuicated, the parties can begin to form creative alternative solutions to what seemed like insurmountable obsticles. Getting to Yes identifies four obsticles in generating creative problem solving options:

1. Premature choosing of one option blinds parties to alternatives that may actually be better for them;
2. A drive to narrow options to finding a single answer can cause undue tension and delay action on either part;
3. Defining the problem in win-lose terms assumes that only one side can "win" while the other must "lose" rather than viewing the negotiation as an opportunity to generate mutually favorable relationships; and
4. Complacency - deciding that it is up to the other party to come up with the magic answer that will solve the current problem (usually this stems from assigning blame to another party for the conflict).

To avoid the failure of generating creative solutions, parties must separate the invention process from the evaluation stage so that they do not limit themselves. By encouraging a free and informal atmosphere for brainstorming (even if some ideas seem far fetched) parties to a negotiation can generate a variety of options. The book suggests clearly distinguishing between these four tasks:

1. Stating the problem;
2. Analyzing the problem;
3. Considering general approaches; and
4. Considering specific actions.

Partial solutions should not be overlooked. After all of the various proposals have been made, the parties can evaluate the proposed solutions, starting with the most promising proposals. As they begin to narrow solutions, the proposals can be refined and improved. Much as a sculptor starts with a big lump of clay and works her way down to a carved image, parties to a negotiation must begin their solution building by starting with a lump of options and carving their way down to a finely crafted agreement.

In Sony's case, there could have been many options offered. Perhaps Sony could have named a price to pay out in damages while simultaneously taking partial ownership in the company (much like Microsoft). Sony and Immersion could have entered a licensing deal. Perhaps Immersion would have preferred Sony (as the number one console maker) to Microsoft (number two console maker) and Sony could have brokered an exclusive deal, precluding competitor Microsoft from having the haptic feedback technology for such a bargain price. Maybe Immersion could have offered to develop haptic feedback support for Sony's popular handheld PSP, thus garnering more business for Immersion and a new interactive functionality for Sony's product.

The final basic suggestion from Getting to Yes involves basing any agreement on objective criteria. This limits parties from viewing the resolution of their dispute as driven by the will of any one party. When benefits of settlement are objectively demonstrated, the willingness of parties to negotiate increases. This technique provides a sense of fundamental fairness, even in cross cultural negotiations where there may be concerns of saving face from being taken advantage of (a likely issue in the Sony case, as saving face in Japan is a major concern of corporations). Three general rules of thumb should be applied in using objective criteria:

1. Issues should be viewed as mutual searches for objective criteria - this allows for parties to feel that they are truly participating in finding a common solution. A good technique is to ask for the reasons behind suggestions. When doing so remind the other party that you are not doubting their suggestion, but that it is better for everyone if all points are clear and openly stated;
2. Keep an open mind - bumper sticker say "minds are like parachutes; they only function when open." In negotiations the same principle applies. Close minded negotiating parties will be unlikely to consider anyone else's interests other than their own; and
3. Negotiators should remain reasonable, but firm - sometimes negotiation and settlement is seen as the soft option or weak route. Negotiators and parties to a negotiation should never play into this. While negotiation works on mutual building, negotiators (and parties) should not allow themselves to be bullied by an unreasonable party. The only thing that will come from that is a one-sided deal, likely to spur resentment and a subsequent law suit.

Sony and Immersion could have looked to the industry standards in brokering a settlement agreement. They could have referred to the Microsoft or Madcatz cases, as well as their subsequent dealings after settlement.

In sum there were many things that Sony could have done to avoid their current legal predicament that would not have involved a law suit. It is likely that they will lose on appeal if it is followed through to the end. At this point they would be prudent to look into any Appellate settlement options offered by the circuit court.